Reserves

Correct answer: A. ₹9,000

The total old ratio is \(4+4+1=9\). The third partner’s share is \(1/9\), so the amount received is \(₹81,000 \times 1/9 = ₹9,000\). Remember that a reserve fund is distributed among the old partners in their old ratio, not in the new partnership ratio.

Correct answer: A. ₹42,000

On the admission of a new partner, the capital reserve is distributed among the old partners in their old profit-sharing ratio. A’s share = ₹66,000 × 7/(7+4) = ₹66,000 × 7/11 = ₹42,000. Therefore, ₹42,000 will be credited to A’s Capital Account. Exam tip: In admission questions, use the old partners’ old ratio for distributing existing reserves, not the new ratio.

Correct answer: A. Sharing profits equally

When the old profit-sharing ratio is not provided, the existing partners are generally assumed to share profits equally. This assumption is made only when no other information is available; the incoming partner’s share is determined separately according to the admission terms. Exam tip: if the old ratio is absent, take the existing partners’ ratio as equal.

Correct answer: A. Credit balance

General Reserve is an accumulated appropriation of profits. Since it represents an amount retained out of profits for strengthening the financial position of the firm or meeting future uncertainties, it normally appears on the liabilities and partners’ funds side with a credit balance. Therefore, option A is correct. When the reserve is distributed or closed on admission of a partner, the General Reserve Account is debited and the old partners’ capital or current accounts are credited in their old profit-sharing ratio. A debit balance would indicate a loss or debit item, not a reserve. Cash balance and loan balance describe asset or liability positions, not the normal nature of this account.

Correct answer: A. Debit balance

Preliminary expenses are an expense item so they have debit balance. On admission they are written off to old partners.

Correct answer: A. Capital increases

The direct answer is Option A: Old partners’ capital increases. A reserve is an accumulated profit earned for the old partnership. When it is distributed on admission, each old partner receives his or her share according to the old profit-sharing ratio. The accounting entry credits the old partners’ capital or current accounts because a credit increases their claim. Option A is correct. Option B is wrong because distributing an old reserve does not reduce the old partners’ capital; it adds their share of past profit. Option C is wrong because there is no rule that capital becomes zero. Option D is wrong because the distribution definitely affects the old partners’ accounts. The new partner does not receive this old reserve because the profit was earned before admission. Exam cue: old reserve equals old profit; old profit is credited to old partners.

Correct answer: A. Capital decreases

An accumulated loss belonging to the period before admission is debited to the old partners’ capital accounts in their old profit-sharing ratio. This reduces their capital balances. Hence, the option stating that capital is unaffected is incorrect. Exam tip: Writing off an accumulated loss requires debiting the partners’ capital or current accounts.

Correct answer: A. ₹40,000

General Reserve represents accumulated profit, whereas the debit balance of the Profit and Loss Account represents accumulated loss. Therefore, net accumulated profit = ₹52,000 − ₹12,000 = ₹40,000. Exam tip: subtract a debit balance or accumulated loss from the reserve; do not add it.

Correct answer: A. ₹45,000

The reserve fund of ₹70,000 represents accumulated profit, whereas advertisement suspense expenditure of ₹25,000 represents an accumulated loss. Therefore, net profit = ₹70,000 − ₹25,000 = ₹45,000. ₹95,000 would result from adding both amounts, which is incorrect because the expenditure must be deducted from the profit. In the examination, add profit items and deduct accumulated losses or expenses.

Correct answer: A. ₹39,000

Accumulated profit is distributed among the old partners in their old profit-sharing ratio. A’s share = ₹65,000 × 3/5 = ₹39,000. ₹26,000 is B’s share, while ₹32,500 would result from an equal division. Exam tip: Use the old profit-sharing ratio for distributing accumulated profits.

Correct answer: A. ₹15,000

An accumulated loss is debited to the partners’ Capital Accounts in their old profit-sharing ratio. B’s share = ₹39,000 × 5/(8+5) = ₹39,000 × 5/13 = ₹15,000. Therefore, ₹15,000 will be debited to B’s Capital Account. Exam tip: distribute accumulated losses in the old ratio, not the new ratio.

Correct answer: A. Old profit

Accumulated profit means profit earned and retained before the admission of the new partner. Under the governing partnership principle, such past profit belongs only to the partners who were members during the period in which it was earned. It should therefore be transferred or distributed among the old partners in their old profit-sharing ratio before the new partner is admitted. If no adjustment is made, the reserve or accumulated profit remains available in the books and the new partner may indirectly obtain a share of it through the new ratio. Option A is correct. The other options are not the accumulated-profit item involved in this adjustment.

Correct answer: A. Burden of old accumulated loss

An old accumulated loss relates to the period before the new partner’s admission, so it should be adjusted through the old partners’ capital or current accounts in their old profit-sharing ratio. If it is not adjusted, the new partner may indirectly bear an unfair share of that loss. Exam tip: losses arising before admission belong to the old partners.

Correct answer: A. To give old results to old partners

Accumulated profits and losses relate to old business period. So they are adjusted among old partners.

Correct answer: A. Credit balance of Profit and Loss Account

A credit balance in the Profit and Loss Account represents accumulated profit that has not yet been distributed or transferred to the partners. Because this profit was earned before the admission of the new partner, the governing rule is that it must be credited to the old partners’ capital or current accounts in their old profit-sharing ratio. Therefore, option A is correct. Preliminary expenses and advertisement suspense expenditure are debit or fictitious assets and are normally written off by debiting the old partners. A debit balance of the Profit and Loss Account represents accumulated loss, so it is also debited to the old partners rather than credited. The distinction depends on whether the item represents profit or loss.

Correct answer: A. Debit balance of Profit and Loss Account

Debit balance of Profit and Loss Account is accumulated loss. So old partners capital accounts are debited.

Correct answer: A. ₹16,000

At the admission of a new partner, the general reserve is distributed among the old partners in their old profit-sharing ratio. B’s share = ₹36,000 × 4/(5+4) = ₹16,000. ₹20,000 is A’s share, not B’s. Exam tip: accumulated profits and reserves are generally distributed among old partners in their old ratio.

Correct answer: A. ₹12,000 each

The Dividend Equalisation Reserve is distributed among the old partners in their old profit-sharing ratio. Since A and B share profits in the ratio 1:1, ₹24,000 is divided into two equal parts: ₹24,000 ÷ 2 = ₹12,000 each. Option B is incorrect because it gives the entire reserve to each partner. Exam tip: For distributing a reserve, first identify the old partners’ old profit-sharing ratio.

Correct answer: A. Like accumulated profit

If no specific liability exists Contingency Reserve is treated as old profit. It is distributed among old partners.

Correct answer: A. ₹12000

₹38000 must be retained to meet the expected liability. Therefore, the balance distributed among the old partners is ₹50000 − ₹38000 = ₹12000. This amount is adjusted in the old partners’ capital or current accounts in their old profit-sharing ratio. Exam tip: Always deduct the liability from the reserve before distributing the balance.

Correct answer: A. Old profit sharing ratio

Accumulated profits were earned during the period when the original partners carried on the business. A new partner was not a member during that earlier period and therefore should not receive a share of those profits. The proper accounting treatment is to distribute the accumulated profit among the old partners in their old profit-sharing ratio.

If the amount was mistakenly distributed in the new ratio, the correction should reverse the wrong allocation and apply the old ratio. Thus, option A, “Old profit-sharing ratio,” is correct. The new ratio is relevant for profits earned after reconstitution, while the sacrificing ratio is used mainly to determine compensation for the share surrendered to a new partner. A cash ratio has no role in this correction.

Correct answer: A. The loss incurred before admission was charged to the new partner

Accumulated loss is generally incurred before the new partner’s admission, so it should be borne only by the old partners in their old profit-sharing ratio. Including the new partner is therefore the main accounting error. Option B describes the usual treatment, while C and D are unrelated to this mistake. Exam tip: Pre-admission accumulated profits or losses are adjusted only among the old partners.

Correct answer: A. In old partners capital accounts

Old reserves and losses relate to old partners. Therefore their final effect appears in their capital accounts.

Correct answer: A. Distributed among old partners in old profit sharing ratio

When no claim is pending Insurance Reserve is treated as old accumulated profit. Therefore it is distributed among old partners in old ratio.

Correct answer: A. They were earned in the old period, so old partners are entitled to them

A reserve is generally an accumulation of profits earned in earlier accounting periods. Since those profits arose before the admission of the new partner, the economic right to them belongs to the existing partners. Accordingly, the reserve is transferred or credited to the old partners in their old profit-sharing ratio, unless the partnership agreement or a specific adjustment requires another treatment. The presence of cash is not the reason for entitlement, because a reserve is an appropriation of profit rather than an outside liability. Its balance-sheet location also does not make it an external debt, and the new ratio applies to future profits, not automatically to past reserves. Hence option A is correct.